Italy's economy should weather new pandemic wave, but inflation risks reducing real GDP growth: analysts

Source: Xinhua| 2021-12-08 04:45:18|Editor: huaxia

ROME, Dec. 7 (Xinhua) -- Italy's economic growth rate is likely to finish the year strongly, analysts say, despite the rising threat from a new coronavirus wave and higher consumer prices. But the inflation will erode the significance of the strong growth figures.

Earlier this month, the Italian government's statistics office raised its estimates for economic growth, both for 2021 as a whole and for next year. The latest predictions are for growth rates of 6.3 percent this year and 4.7 percent in 2022, up from previous estimates of 4.7 percent and 4.4 percent, respectively.

If the estimated growth rate for this year is accurate, it will be the largest one-year expansion of Italy's economy since 1976, according to historical data from the World Bank.

Lorenzo Codogno, founder and chief economist with LC Macro Advisors and a visiting professor at the London School of Economics and Political Science, said the diversification of Italy's economy and the country's high vaccination rate are both working in its favor when it comes to near-term growth prospects.

"The rising coronavirus infection rate will hurt some sectors, like those related to tourism, but unless the situation worsens to the extent that we will see new lockdowns, which is unlikely, then overall economic growth should be fine," Codogno told Xinhua.

Italy's coronavirus infection rate has been climbing in recent weeks, creating fears that the country could be in the early stages of a new wave of the pandemic. On Tuesday, the country recorded more than 15,000 new infections over the previous 24 hours. It was the sixth time in the last seven days that the grim milestone had been reached. Previously, that level had not been seen since April 22.

But Italy has still fared better than most major European countries in recent weeks, including Britain, Germany, and France, which have regularly seen one-day infections topping 50,000.

Part of that is because of Italy's vaccination rates. As of Tuesday, 84.8 percent of the country's population over the age of 12 was fully vaccinated. Adding those who had been infected and recovered from the virus over the previous six months, 88.5 percent of the population over the age of 12 has at least partial protection of antibodies against the virus.

"Italy benefits from a high vaccination rate, which is limiting the spread of new infections," Codogno said. "That is why new lockdowns are unlikely. People are learning to live with some health restrictions, so the economic impact from the pandemic is more limited."

But according to Alessandro Polli, an economic statistics professor at Rome's Sapienza University, the strong growth rate does not look as strong under scrutiny. Polli said that part of the reason the growth rate is high is that prices are higher. According to ISTAT, the statistics institute, consumer prices were 3.8 percent higher in November than they were a year earlier.

"There are two broad categories of inflation, one based on higher costs and one based on higher demand," Polli told Xinhua. "What we are seeing in Italy and in other countries is based mostly on higher costs."

Polli noted much of the current increase in prices comes from higher global energy prices rather than from vibrant demand from consumers. Energy costs have a wide-ranging impact because they increase the cost of everything that is transported.

"The benefit of having an expanding economy is limited if prices rise too much," he said. "If the economy ultimately grows by, let's say, 6.5 percent and prices rise 3.5 percent, the real economic growth is just 3.0 percent. That's not bad, but it isn't strong considering what happened last year."

Last year, ISTAT data shows the Italian economy contracted by 8.9 percent due to the pandemic, which sparked a worldwide economic slowdown. Enditem

KEY WORDS: Italy,Economy,Recovery